Broad Money Demand and Monetary Policy in Tunisia
The development of empirical foundations to the conduct of monetary policy in Tunisia is the central concern of this paper. Finding stable money demand functions, it broadly corroborates the choice of monetary aggregates as intermediate targets of monetary policy by the Tunisian Central Bank. It finds, however, a lower income elasticity than the one currently applied by the Central Bank and proposes a different methodology for defining monetary growth targets. The paper also finds that both interest rates and reserve money are feasible operating targets and suggests that the Central Bank orients its monetary policy more towards transparent operating targets.
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ADF-test Akaike Information Criterion augmented Dickey-Fuller test Banken und Versicherungen base regime Chart conduct of monetary critical value demand for M2 demand for money Eigenvalues equation Estimated by author estimated money demand financial sector reforms growth of M2 growth rate highly liquid treasury Hypotheses r=0 rš hypothesis of cointegration indicates INFL interest rates International Monetary Fund introduction of treasury Johansen test lags Monthly data liquid treasury bills long-run LRGDP M2 and M4 monetary aggregates M2 monetary base monetary growth targets monetary policy monetary targeting regime money demand function money market rate money supply nominal GDP out-of sample P—value parametric instability percent level real economy RECURSIVE CHOW TESTS recursive parameter estimate rediscount rate refinancing reflect regression reserve money reserve targeting regime residuals return on treasury seasonal dummies Seasonal lags Monthly stability Standard Error statistically significant T-bill rate treasury bill rate TRES Tunisian Central Bank Tunisian Dinar unit root